April 24, 2020 Weekly Market Update. All major U.S. equity indexes lost ground with the S&P 500 -1.32%, the Dow Jones -1.93% and the Nasdaq -0.18%. For the week ending April 18, another 4.4 million Americans filed for unemployment benefits. Over the past five weeks, more than 26 million Americans have filed unemployment insurance claims. Further, for the third consecutive week oil prices fell, but this time precipitously as drastic cuts in production still failed to keep pace with an estimated 30% decline in worldwide demand. New auto sales were down -32% in March while consumer spending was down over -25% year-over-year in the past week. According to a recent survey, around 33% of respondents were “within three missed paychecks of having to either borrow money or skip bills.” On the other hand, quantitative easing (“QE unlimited”) continues with the Federal Reserve expanding its balance sheet at a pace of about $41 billion per day. In fact, the Federal Reserve, European Central Bank, Bank of Japan and Bank of England will expand their balance sheets by a cumulative $6.8 trillion. Central banks in Group of Seven countries purchased $1.4 trillion of financial assets in March, nearly five times as much as the previous monthly record set in April. Earnings season had some good news and bad, but it is backward-looking; most U.S. states were still operating at full pace thru mid-March. The tug a war between government stimulus, the Fed and progress against COVID-19 versus severe economic mayhem is impacting capital market price behavior with yo-yo like moves. Our market view has not changed, and we reiterate that we believe the prospects of a gradual “V” shaped economic recovery to be overly sanguine; yet the worst case scenario (Great Depression) is off the table with unprecedented governmental intervention. We still anticipate markets to retrace back downward at some point when it is clear the consumer mindset has changed post-virus, particularly given the consumer (again 70% of GDP) has really taken it in the shorts and a $1,200 one-time stimulus distribution is palpably insignificant.

April 18, 2020 Weekly Market Update. On the week, the market celebrated any form of good news and largely shrugged-off the very severe, and partly permanent, damage to the U.S. economy. The S&P 500 gained 3.04% while the Dow Jones posted a 2.21% weekly return. Instead of processing and valuing the awful economic toll, the market inflated the new prospective Gilead COVID-19 treatment and the fact that Boeing plans to resume production at one of its plants. Also, market forces clanged to news of WH’s criteria for reopening the economy. The real market support, however, is that the that worst case scenario is off the table as the government has been aggressively purchasing assets to support the capital markets; the Treasury ledger of assets owned by the Federal Reserve, has ballooned to 6.08 trillion as of April 8. What was not reflected in the markets were a record 22 million people who have sought jobless aid as a result of COVID-19. This is reflected throughout the U.S. economy: March retail sales cratered -8.7% and Philly Fed manufacturing index plunged -43.9 points to -56.6 (lowest since 1980), while Housing starts plummeted -22.3% to 1.21 million in March. Unfortunately for small businesses the $350 billion PPP payroll relief package is already depleted and there are reports some of the biggest beneficiaries were larger companies, which 'reportedly' was an unintended result.

April 11, 2020 Weekly Market Update. After a remarkable rally this week, even the world’s leading investment strategists now hold mixed and often conflicting views on the ultimate direction of the U.S. equity markets. In one camp, there are market strategists who hail this recent market shift out of bear market territory, to where the S&P has now exited the -20% loss range, as a confirming signal that the market has returned to be a bull market phase. In contrast, other market strategists view this week’s rally as only a normal bear market rally that is simply a head fake, which they show supporting historical statistics. Unfortunately, nobody knows the right answer for sure. Case in point, does one piggyback on the government and central bank extraordinary stimulus of pouring trillions of dollars into the economy and, more recently, the central bank ‘actually’ purchasing financial market assets. Or, does one focus on historical Ned Davis Calendar, where on average across the past 11 bear markets, the final bear market low came 137 days after first registering such a loss. Both are compelling arguments where one must weigh the unprecedented scale of government and central bank support against severe economic distress as highlighted by record job losses and virtually an economic seizure, along with the prospect of controlled halt to economic activity for many weeks, or months to come. On Thursday of this week, the Federal Reserve said it could pump $2.3 trillion with expanded programs which includes bond market asset purchases. This is separate from the earlier $2.2 trillion COVID-19 stimulus package. There is no doubt that policy makers are making grandiose gestures with spending to keep boosting the flailing economy and capital markets. However, the typical rule of thumb is that stock markets decline roughly as much as corporate earnings drop, which many expect to fall 25%-38% range over the next few quarters. Also, when looking at past bear markets as a guide, you don’t have a bear market without a bear market rally. For example, turning to 1929, 1987 and 2008 as guidance, there were all marked by bear market rallies followed by more severe losses later. The market crash of 1929 lasted from Oct. 10-29, which was followed by a bounce that retraced 36% of the crash-phase losses, only to fall even further down later (80%). The crash phase of 1987 lasted from Oct. 2-19, then there was a first bounce retraced 28%, only to reach crash-phase losses again later. The sharpest crash of 2008 lasted was Sept. 19-Oct. 27, followed to the first real bounce retraced 24% of the crash-phase losses, then ultimately falling a total 38%.We are not reinvesting right now as we believe both stimulus vs. historical bear market behavior are likely in play, which will result in the market yo-yoing. First, we have written that we anticipate the market rally on news of COVID-19 infection flatlining trends and new treatment drugs, along with stimulus news. However, running the math shows that all the stimulus is simply covering a large growing gap, not rebooting an economy. So, here is the math: if the U.S. economy is about $21.5 trillion and the GDP essentially moved offline in mid-March, then the economy has been stalled for about a month now, at a cost of roughly $1.8 trillion lost. Yes, some businesses are still operating, but for sake of simplicity, let’s assume $1.8 trillion evaporates every month and most expect that the economy won’t reopen until mid-May (earliest), with a good part still idled for many more weeks (hotels, airlines, cruise ships, Las Vegas, etc.). Then, let’s say the economy loses two-months of productivity, which is about $3.6 trillion dollars gone from the U.S. economy (recall, COVID-19 was $2.3 trillion). Yes, the central bank is also adding big stimulus, but that isn’t going into the economy, but rather boosting the capital markets so fear doesn’t run rampant – therefore, just superficial stimulus. Finally, let’s say Trump and Congress decide to add a couple more rounds of COVID-19 stimulus to match the $3.6 trillion lost ground (or another $1.3 trillion added), then all that does is cover a gaping economic hole and does not reboot the 10’s of millions newly unemployed, pay consumers’ massively mortgage and utility delinquencies during this period and certainly doesn’t save the hardest hit small businesses that went out of business, like restaurants, gaming, retail, sports, entertainment (concerts, movies, parks, festivals) etc.Yes, the market is celebrating the central bank’s asset purchases in the markets, and also rejoicing in news that businesses and consumers will be helped out with stimulus, but how will the market be reacting to the horrible economic toll numbers that will be released in the weeks to come – probably not so celebratory. Also, I have yet to hear of one business or personal to have received a dime yet from this stimulus, and knowing the inefficiency of bureaucracy, some of the stimulus may be “too little, too late.” Recall, consumer spending is about 70% of the economy and they are hurting the most. Considering this perspective and the current economic landscape, I still think the roughly 28% average cash balance for clients has a good probability of being deployed to buy at lower equity value prices down the road. To be clear, nobody can say with certainty what will happen, but a little extra cash during times of great uncertainty seems prudent. Also, portfolios are still exposed to the market and therefore benefiting from the recent rally last week. Lastly, in the event trillions upon trillions of more (new) dollars are continually added to both the economy and the markets with additional asset purchases, then we very well may need to rejoin the party with the cash in hand. But for now, I think we have the right balance of diverse invested assets relative to cash given current conditions.

April 4, 2020 Weekly Market Update & (Revised) 2020 S&P 500 Market (Directional) Forecast: For the week, the Dow Jones Industrial Average led the U.S. index losses at -2.70%, followed by the S&P 500 Index -2.08% and the Nasdaq -1.72%. It was another topsy-turvy week that was impacted by jobless figures (crazy spike), payrolls (down), oil (down, then dead-cat bounce), COVID-19 infections (scary up) and stimulus policy implementation (initiated). Looking back at this bear market, it was initially started with daily free falls in stocks, then over the course of the past weeks the equity markets have been less volatile with more liquidity, yet still oscillating on a downward trajectory. The reality is it will take a long time for the U.S. economy to properly absorb the 2 trillion-dollar stimulus and by the time the economy does, then things will likely be even worse. I look at it this way, the stimulus represents about 10% of GDP, but some Wall Street firms are now looking at the U.S. economy (GDP) contracting almost -40%. So, from the macro perspective, even when the stimulus is fully implemented, the markets should still be down over -25% just as a baseline (+10% -38% = -28%). Yes, there is more stimulus likely to be on the way, but I suspect the full negative impact of COVID-19 on business activity has yet to be foretold. For example, there is going to be a heck of a lot of businesses that will shutter, which will include many bankruptcies for small businesses, and serious downsizing for even the big companies with slashed office footprints, closed retail space, laid-off staffing/workforce etc. The government just can’t throw money at a massive and complex problem, then jump-start the U.S. economy into a “V” shape recovery. That said, at some point, there will still be an opportunity to trade here as the markets are behaving with better liquidity (exogenous help by Treasury w/ asset purchases); therefore, advisers with a thoughtful investment strategy can be opportunistic. Case in point, we plan to reenter the market with phased increments near or at the March 23rd lows. Then later, we think there will be some upside opportunity to sell some of the bottom feeding acquisitions months after on expected future COVID-19 medical treatment announcements down the road. It is our view there is the highest probability that the U.S. equity markets will take a partial “W” course, but flat-line before making the last upswing. Hence, the market will fall (which it did), it will recovery some with stimulus (which it did), will fall again (started, expect further downside), then partially recover again when there is news that COVID-19 is flattening & news of effective medical treatments, then finally decline from there to some (unknown) degree as the market ‘soberly’ processes that the world’s largest economy just can’t restart all engines when many of the largest companies had already taken longer-term “cutback” actions that simply can’t be undone with a magic wand.

First Quarter & March’s Monthly Wrap-up: The S&P 500 index finished down -20% for the first quarter, marking its worst quarter since the fourth quarter of 2008. The S&P 500 was down -12.51% for the month, while the Dow finished off -13.74%. Except for utilities, the other 11 sectors were down; tech’s big 5 lost a trillion dollars last month.